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Another look at the instrumental variable estimation of error-components models

Arellano, M. and Bover, O. (1990) Another look at the instrumental variable estimation of error-components models. CEP Discussion Papers, CEPDP0007. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformation in panel data models. We characterise the valid transformations for relevant models and show the optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with effects and illustrate their importance with simulations.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 1990 The Authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: CEPDP0007
Date Deposited: 22 Aug 2008 09:45
URL: http://eprints.lse.ac.uk/21135/

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